City University Research Journal

Volume 04 Number 01 January 2014 Article 06

ROLE OF PERFORMANCE BASED REWARD SYSTEM IN

IMPROVING EMPLOYEES PRODUCTIVITY AND JOBSATISFACTION: ANALYSIS OF GOVERNMENT ANDPRIVATE SECTOR OF PESHAWARZunnoorain Khan, Nasir Karim and Sharif Ullah JanABSTRACTRationale of this research study is to answer the question that how the performancebased rewards system increases the productivity of an employees. The study wassignificant for quantifying the link between rewards, tied with employees' performanceand their productivity and was also significant for guiding the researcher to find out thekind of rewards that are intrinsic or extrinsic and results in high employee motivationand thus job satisfaction. It is also helpful in finding out that how performance basedrewards affects employees' productivity in government and Private sector of Peshawarregion. Total 550 questionnaires were distributed in different government and privateorganizations out of which 510 were received with a response rate of 92%. Productivitywas positively related with Job satisfaction (p<0.01), similarly Productivity waspositively related with reward system (p<0.01). It is clear from this research that thesatisfied and highly motivated employee stays in the organization for longer time andtransforms the inputs in more productive way than an unsatisfied and low motivatedemployee. In the recommendation part of the study, it has been suggested thatorganizations provide such an environment which create better opportunity for theiremployees and utilize the resources in an improved manner, minimize all those factorswhich create biasness and injustice whereas employer's understand the desires with theproductivity of an individual employee. In order to achieve success, organizations mustretain their employees and provide them better advancement opportunities.Key Words:

Reward System, Productivity, Job Satisfaction

INTRODUCTIONEvery organization has some goals and objectives and they arrange, perform theiractivities in such a way, so that these goals can be accomplished. Management inparticular has the responsibility to help organizations in achieving its set targets andvision. Productivity is that which people can produce with the least effort (Rolloos,1997). Productivity in recent times is defined as an indicator of how well goals orperformance, objectives or mission have been achieved. Improved productivity thusmeans better performance in terms of task completion, less absenteeism and jobsatisfaction.

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Employee productivity is an important issue for organizations because ultimately

employees improved performance is one of the key factor that can affect organization'soverall productivity and growth. The key concern for any organization will be to answerthe question that how an employee can work more efficiently and effectively to increasetheir productivity as well as organization's productivity and growth. Productivity isinfluenced by many factors some are internal to organization while others are externalfactors. It is found that some employees are more productive in their work while someare not. The reasons for high or low productivity can be various depending upon theorganization's work environment, culture, structure, job description, organization'spolicies, rewards system etc. This study however, will be centered around the impact ofperformance based rewards system on employees' productivity.Productivity varies greatly from organization to organization. The organizations thusmust decide on the basis on which they will measure their employees performances forexample number of output produced in less time, the completion of task, sales volumeper employee etc.In order for the businesses to succeed, management must keep a close eye on theiremployees' productivity. They should identify the reasons for poor performance by anemployee and should try to motivate and encourage their employees to show betterperformances and should reward good performance. Management uses to evaluate thecurrent performance of the employees and guide them to improve their performance infuture.In today's highly competitive world it is important for organizations to retain theirhighly skilled employees because a productive employee is an organization's strongestasset. They can do so by motivating them through various incentives so that they keepon doing good job and are satisfied with their job. Amongst all other factors providingperformance based rewards to employees can also increase employees' productivity.Rewarding employees on good performance can be very effective in reducing theturnover rate. Employees when feel that their services are valuable for the organizationand he/she is rewarded for his/her good performance, in turn they will be morecommitted to their organization. It is well understood fact that people who feelrecognized, show a stronger desire to help the organization grow and succeed.Performance based rewards system can also be termed as Pay for performance systemor Merit Pay. This term means giving incentives and rewards to employees based ontheir performances. The main objective of performance-based rewards system is to tiepay with performance and to achieve improvement in productivity. This system is basedon the assumption of attracting, retaining and motivating employees. This system isused as a tool by organizations in order to motivate their employees. Leaders andmanagers are responsible for improving productivity of the employees thus the wholeorganizational culture should be performance orientedFredrick Taylor, who is known as father of scientific management, for the first time inC

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1920 with his scientific management principles introduces the concept of productivity.According to Taylor's scientific management principles, organization should increaseefficiency in production with lower costs and should raise profits through higheremployee productivity. Taylor emphasized that employees productivity can beincreased by possible increase in pay and by giving them financial rewards on goodperformance. Providing rewards to employee is one of the key component ofperformance management process. Rewards can be of various types including financialrewards i-e money and non financial rewards like recognition, acknowledgement ofgood job.Rewards or incentives are also given on grade basis that is equal to each employee in thesame grade irrespective of their performance. In some organization rewards are given toemployees on their seniority basis that is number of years spend in that organization.While in recent times organizations have started giving rewards based on theperformance of the employees.Employers have number of options available to them to give rewards to employeesbased on their need and preferences. It is psychological fact that people are motivated bythe thing which they desire the most or which they need the most. So, managers in orderto motivate their employees and to ensure improved productivity must have thoroughunderstanding of employees' needs and wants. If rewards are linked with performance,productivity increases along with job satisfaction. Rewards that are fair, unbiased andappropriate lead to job satisfaction.Principles of management also dictate that maximizing employees' productivitydepends upon personal motivation and work environment. Joran Beel, mentioned in hisbook project Team rewards that Rewards cannot directly affect success. The directaffect of rewards is on employees' motivation.In a nutshell, performance based rewards system helps in motivating employees and as aresult of high motivational level employees show good performance. Job satisfactionand motivation are considered as an outcome of a good performance based rewardssystem.Background of the StudyAccording to the study of Mwita (2000) strategic goals of an organization can only beachieved when performance of an employee was major determined for success.Organizations hire talented and skilled employees, provide them proper training and inreturn expect good performance and productive results from them. Henceforth, thisleads to the emergence of a query that what makes an employee to work harder in aneffective and efficient way to increase overall organizations productivity and growth.Performance based rewards is one of such tools used by managers to motivateemployees to show better performance. Based on this issue of productivity, as a majorconcern for organization, the researcher thought of conducting a study attempting toestablish a link between performance based rewards system and employees'82

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Role of Performance Based Reward System...

productivity. There might be many other factors responsible for employees' increasedproductivity, but the scope of this study is limited only to performance based rewardsystem.With the emergence of Taylor's scientific management principles, many companiessuch as Ford Motors started to link rewards with performance. Now this system isbecoming an increasingly popular practice in many western countries. There is largeamount of work done on employees' productivity in many parts of the world howeverthere is very limited research conducted on the impact of performance based rewardsystem on employees' productivity particularly in Pakistan upto the best knowledge ofthe researchers. Hence it is important to recognize the effectiveness of performancebased reward system and its impact on employees' productivity in Pakistanienvironment.PURPOSE OF THE STUDYThe major objectives of the proposed study were to better understand the relationshipbetween the performance based reward system and employees productivity. Variousdimensions of productivity were identified during the study, but for the matter ofconciseness of the study and to ensure its timely completion only performance basedreward and job satisfaction are considered and analyzed. This study attempt to develop athorough understanding of performance based reward system, its merits and demerits.This study aims to find out whether it will be effective for organizations to give rewardbased employee performance or other factors for rewards should also be considered.This study sought to answer that how can performance based reward system leadtowards employee motivation and job satisfaction and then ultimately towardsemployees' increased productivity.Rewards as per discussion above can be of two types these are financial and nonfinancial rewards. But the major concern for any organization would be to decide whichkinds of rewards are more effective, in order to enhance employees' performance. In theproposed study the researcher was tried to find an optimal solution for this problem byfinding out the impact of both financial rewards and non financial rewards on employeeproductivity.This study was conducted to find out whether monetary rewards are the major factor foran employees' satisfaction and thus increased productivity or employees are moremotivated by and satisfied from other non financial rewards as well.This study performed on Pakistani organizations; therefore this study highlighted theimportance of performance based reward system and its power to increase employees'job satisfaction and overall productivity in Pakistani organizations.HYPOTHESES DEVELOPMENTTo examine the relationship between performances based rewards system andemployees productivity,C

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HYPOTHESIS # 1H1: High level of employees' productivity is linked with financial rewards.HYPOTHESIS # 2H2: Performance based rewards helps in raising employees' job satisfaction levelleading towards increased productivity.HYPOTHESIS # 3H3: Performance based rewards system helps in raising employees' motivation levelleading towards increased productivity.METHODOLOGYBoth Primary and secondary data collection methods were used. In this study, the role ofpay for performance system in increasing employees' productivity in Pakistaniorganizations were examined. For study Non-probability random sampling techniquewas used; during analysis 44 different corporate institutes were the prime focus of studyin Peshawar division of the Khyber Pakhtoon Khwa, Pakistan.Primary data was collected through interview and questionnaires from selectedemployees of Public and Private sector. The questionnaire comprised of 30 items each.Five point Likert scale was used. Demographics section comprised of Organization,Gender and Job Title.Results and DiscussionsTable 1: Model Summary

Model1

R.992

R Square

Adjusted R Square

Std. Error of the Estimate

.985

.975

.08498

a. Predictors: (Constant), job satisfaction, Reward System

According to table no; 1 the value of adjusted R square interpreted that dependentvariable i.e. Productivity is influenced by 97.5% on independent variables which is Jobsatisfaction and Reward System. Table 1 shows R= 0.992 shows 99% variation in JobSatisfaction, Reward System and Productivity. Coefficient of determination (RSquare) which illustrate that 98.5% total variation is explained with its linearrelationship of Reward System and ProductivityTable 2: ANOVAbModel

RegressionResidualTotal

Sum ofSquares1.407.0221.428

df

Mean Square

Sig.

235

.703.007

97.385

.001 a

a.Predictors: (Constant), job satisfaction, Reward System

b. Dependent Variable: productivity84

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According to table 2 which describe the value of F-statistics, (97.385) level of

significance since the value of P is less than .05 therefore; overall model was found fit,so it is accepted that role of reward system and job satisfaction in productivity is highlysignificant.Table 3: CoefficientsaStandardizedCoefficients

UnstandardizedCoefficientsStd. Error

Beta

Co linearityStatisticst

Sig. Tolerance

VIF

Model

1 (Constant)

.317

.759

.417 .000

job satisfaction

.667

.055

.968 12.145 .000

.795

1.257

Reward System

.167

.261

.051

.795

1.257

.639 .000

a. Dependent Variable: productivity

Productivity = .317+ .167 (Reward System)According to the above equation which explains us that one percent reward system willbring 16% change in Productivity.= .317 shows the value of Productivity and when the value of Job Satisfaction is 0whereas .667 is the beta value which shows that one unit increase in job satisfaction willbring .667 unit increase in ProductivityProductivity = .317+ .667 (Job Satisfaction)According to the above equation which explains that one percent change in Jobsatisfaction will bring 66% change in Productivity.According to table no; 3 in which co linearity statistics indicate .795 tolerance value forboth variables which is less than 5 and the value of Variance Inflation Factor (VIF) isless than 10 shows that there is no co-linearity.Practical proposition:To observe the role of reward system with Productivity and job satisfaction of anemployee, proper reward system can help management to improve work productivitythrough fulfilling the needs (extrinsic and intrinsic) of the employees which canincrease productivity through job satisfaction and commitment towards theorganization. This research study makes valuable course of action for managers tounderstand the importance of reward system which can enhance the outcomes in a moreresult oriented way. During findings we observe that mostly private sector organizationsdidn't give proper performance based rewards to their employees which ultimatelyC

Sharif Ullah Jan: Lecturer (Finance), City University of Science & InformationTechnology, Peshawar. Ph.D (Research Scholar) Iqra National University, Peshawar.More than 2 years experience in teaching and research. Published one research papers.E-mail: sharifjn@gmail.com